Few countries in Africa can offer fiscal stimulus
For advanced economies dealing with economic disruptions from the coronavirus pandemic, the response of choice has been huge stimulus packages. Africa is doing without them.
While central banks and governments in North America, Asia and Europe have offered trillions of dollars to prop up businesses hit by lockdowns and provide a safety net for the swelling ranks of the unemployed, a lack of liquidity restricts African governments from similar relief.
SA, Africa’s most industrialised economy, announced a R500bn package, with less than half of that, or about 3% of GDP, that is new spending. Ivory Coast came up with a support plan of $3bn, or 5% of the world’s top cocoa grower’s output. That compares with stimulus worth 15% of GDP in the US and 12% in Canada. Japan’s stimulus, including existing measures, equates to 42% of GDP.
“All these countries need is the will,” Senegal’s President Macky Sall said of richer nations’ pandemic responses at a May 19 New York Forum Institute webcast. Others simply “cannot mobilise $2-trillion or $3-trillion to deal with the health crisis and its fallout”.
Multilateral lenders and country creditors have stepped in. More than a third of the nations who have received emergency World Bank support are African and the IMF has approved more than $13bn in emergency funding for countries on the continent. The Paris Club suspended debt repayments for seven low-income countries under an initiative backed by the Group of 20 (G20) leading economies.
“Everyone’s impacted and all countries are trying to protect their most vulnerable households and businesses,” Yvonne Mhango, a Sub-Saharan Africa economist at Renaissance Capital, said by phone on May 21.
“We don’t have the fiscal buffers and savings in Africa to put forward large fiscal stimulus packages like you’re seeing in the West,” she said.
Years of poor fiscal discipline have made some African economies even more vulnerable to the crisis. Even before the pandemic, rising interest costs were crowding out crucial social and health spending.
The continent has averted worst-case health outcomes, recording fewer than 5,000 Covid 19-related deaths, less than 2% of global fatalities, but as elsewhere, strict lockdowns have stripped many of their livelihoods. Three-quarters of Africa’s working population toils in the informal sector, according to a 2018 World Resources Institute report.
That means that even if governments did provide support, many workers would be out of reach of government programmes, such as SA’s Unemployment Insurance Fund (UIF).
At the same time, the predominance of the informal sector could offer some protection and help African economies rebound more quickly than advanced counterparts, said Amaka Anku, Eurasia Group’s Africa head in a May 22 interview. They are less leveraged and less interlinked, “so there’s not as much of a contagion effect”, she said.
But the economic shock could still be devastating on a continent that is home to about half the world’s poor. Many African countries are pushing for a debt standstill to free up funds to focus on supporting citizens.
“The Western world can print $8-trillion to support their economies in these extraordinary times and we are still being thrown a classical book with classical responses,” Ghana’s finance minister Ken Ofori-Atta said at a June 3 conference.
“The fiscal response Africa desperately needs has been tempered by varying combinations of high indebtedness, weak institutions and tightening financial conditions.
“Although the IMF and G20 debt relief and concessional loans have helped, it is far from enough. This will make it difficult for most countries to lay the foundation for a swift recovery once the intense phase of the pandemic has passed,” said Boingotlo Gasealahwe, Bloomberg’s Africa economist.
THE WESTERN WORLD CAN PRINT $8TRILLION TO SUPPORT THEIR ECONOMIES AND WE ARE STILL BEING THROWN A CLASSICAL BOOK